Alaska Tip Laws (2025): Everything Employers Should Know

 

In states like Alaska, where living costs are high, tips are an integral part of service workers income. State tip laws provide these workers further support by protecting their earnings, promoting fairness, and ensuring transparency. For restaurant owners, understanding and remembering these laws is key to staying compliant, avoiding penalties, and cultivating a working culture that respects and retains its staff.

What is a “tip” in Alaska?

Alaska law defines a tip as an amount a customer voluntarily offers a service worker to supplement the cost of products, services, and taxes paid to the business. The customer can pay a tip in cash or designate an amount as a tip on a credit card charge slip. Service charges added to a customer’s bill don’t count as tips.

What is the difference between a tip and a service charge?

Alaska treats tips differently from service charges. Where a tip is an amount a customer voluntarily pays in recognition of employee service, a service charge is an amount a business charges to a customer to account for service costs.

Tips have protection under Alaska law, and belong exclusively to the employees. Meanwhile, service charges count as business revenue. They belong to the employer, who can decide how to distribute them. Should an employer decide to distribute the amounts earned from service charges to employees, they must clearly state that these amounts aren’t tips, so that they bypass tip laws.

What is the difference between a tip and a gratuity?

In Alaska, gratuities legally count as employee income and must be distributed to employees, typically through a tip pool.

However, an important distinction is that a tip is an amount that a customer pays voluntarily, while a gratuity is an amount the employer automatically charges to the customer, typically for large group bills or special events. Employers are expected to handle gratuities, but aren’t allowed to handle tips unless an agreed-upon tip pooling system is in place.

Gratuities, in turn, differ from service charges in that they belong to the employees rather than the employer. Where service charges count as business revenue, gratuities count as employee income. Employers can distribute service charge earnings as they please, but must always return gratuities to the employees.

Who owns the tips?

Under Alaska law, tips belong to the employees, not the employer. Employers, managers, or supervisors may not keep any portion of employee tips, and may handle them only to redistribute them through mutually agreed-upon tip pooling arrangements.

Minimum wage and tip credit in Alaska

Alaska is one of the few states without a separate minimum wage for tipped employees. This means that employers must pay all employees the full state minimum wage, regardless of tips earned. As of 2025, the minimum wage in Alaska is $13 per hour.

Because Alaska law requires employers to pay all employees full minimum wage before tips, tip credit arrangements are no longer necessary. Employers must pay their employees exclusively from business revenue, and aren’t allowed to include employee tips as part of wage calculations.

Tip pooling in Alaska

Although Alaska law states that tips legally belong to employees, it allows employers to redistribute tips across staff through tip pooling arrangements, provided all employees agree with the arrangement. Tip pooling is the only situation where employers have the authority to handle employee tips.

Alaska allows tip pooling because fairly implemented tip pooling systems support the state’s goal of ensuring fair pay for all service employees. It allows establishments to distribute earnings across all staff, including workers like bussers and food runners, who typically have fewer opportunities to receive direct tips.

Tip pooling also promotes teamwork and service quality. By making employees work toward a shared pot of earnings rather than competing for individual tips, everyone reaps the rewards of working hard. Everyone becomes incentivized to collaborate and deliver quality service.

Tip pooling rules

While tip pooling brings food establishments many useful benefits, they still require careful execution. Alaska law requires employers to follow a few guidelines to ensure fairness when setting up tip pools.

• Only eligible employees can participate: Tip pooling exists to support fair pay for service workers. Therefore, employees can only mandate tip pooling among service workers, such as servers, bussers, hosts, bartenders, and food runners. They aren’t required to share their tips with employees who don’t customarily receive tips, such as managers, supervisors, and back-of-house staff.
• Notify all participating employees in writing: Ensure that all employees understand the conditions of the tip pool arrangement, such as how it works, who is involved, and the schedule for tip distribution, by providing a written notice. Putting all key information in writing prevents confusion and potential disputes.
• Distribute tips daily unless stated otherwise: Under Alaska law, the default assumption is that tip pool arrangements will redistribute tips daily. You can waive this requirement by identifying your tip pool distribution schedule in your written notice to your employees.
• Tip pooling arrangements cannot apply retroactively: You aren’t allowed to apply changes to tip pooling arrangements retroactively. To avoid wage disputes or labor protection violations, you can only hold employees to tip pooling rules they have been properly informed of in advance.

Can employers deduct card processing fees from tips?

According to Alaska law, if a customer pays a tip using a credit card, and the credit card company charges a transaction fee based on the percentage of the sale, the employer may deduct the same percentage from the employee’s tip. To illustrate, we’ve provided a few examples.

Example 1: If a credit card company charges an employer a 2% transaction fee, the employer can apply a 2% deduction to employee tips paid through a credit card. This means that if a customer incurs a bill worth a total amount of $50, with $5 as a tip, the employer may deduct $0.1 (2% of the $5 tip) to contribute to credit card processing fees.

Example 2: A customer used their credit card to pay a bill worth $200, inclusive of a $50 tip. Because the credit card company charges a 3% transaction fee, the employer deducts $1.5 (or 3% of $50) from the employee’s tips.

Example 3: A food establishment receives a credit card payment worth $60, with $10 designated as a tip. To offset the 3% transaction fee charged by the credit card company, the establishment deducts $0.3 (3% of $10) from the tips.

Please note that the employer can only deduct a percentage of the tip for credit card fees. Employers cannot deduct the entire credit card fee from the employee’s tip.

Legal consequences of violating Alaska tip laws

Violating tip laws doesn’t just cost your employees money. It also opens you to a number of possible legal consequences, including civil penalties, wage claims, and tax issues.

1. Civil penalties

The state may penalize employers found violating Alaska tip laws. The Alaska Department of Labor and Workforce Development (DOLWD) has the authority to assess fines for each violation, meaning penalties vary by case. When determining the appropriate penalty, the DOLWD considers the size of the establishment, the severity of the violation, and whether the employer acted in good faith.

2. Wage claims and back pay

Employees have the right to file wage claims with the DOLWD should their employer unlawfully withhold their tips. Successful wage claims require employers to pay back the withheld tips, plus potential interest and liquidated damages.

3. Tax implications

Managing tips improperly can create tax issues. The IRS may penalize employers for failing to report tip income accurately or for failing to withhold the appropriate taxes.

4. Consequences for employees

Beyond losing money, employees might also face legal and financial consequences when their employers fail to report their tip income.

• Lower tax reports: Tip law violations often lead employees to under-report their income. As a result, their tax documents show lower earnings, which can create challenges when applying for loans, credit cards, or mortgages.
• IRS penalties: If your employees fail to report all their income, the IRS may charge back taxes, potentially with interest. It might also impose penalties or potential audits unless the employee files a successful wage claim.
• Reduced retirement benefits: Programs like Social Security and Medicare depend on payroll tax contributions. When you underreport tip income, employees’ contributions decrease, which can reduce their future retirement benefits.
• Lower unemployment benefits: If employees lose their jobs, tip law violations that led to under-reported income can lower their unemployment benefits. This is because benefits are calculated based on income from the first four of the last five completed calendar quarters.

Simplify tip management with 7shifts

While tip laws in Alaska are easy to understand, managing tips in real life can get pretty complicated. Save the headache with 7shifts tip management features, which automate all tip-related tasks, including tip pooling calculations, digital tip payouts, tip documentation, and tip reporting. With 7shifts, you can eliminate the tedium of administrative work while ensuring transparency and fair compensation for your employees.